The U.S. government is reportedly examining a Chinese contract with Iran as a possible violation of its sanctions law. But a top aide in the new administration of President George W. Bush indicated that Iran policy and sanctions will also be reviewed. Correspondent Michael Lelyveld reports.

Boston, 23 January 2001 (RFE/RL) -- U.S. officials says they are unsure about the future of sanctions against Iran following reports that a Chinese company may face penalties for helping Tehran with its Caspian export plan.

The uncertainty is the result of two recent events with seemingly opposite implications.

On the one hand, news reports quoted U.S. State Department officials as saying they are examining a deal by China's Sinopec oil company as a possible violation of U.S. sanctions law against investment in Iran. In 1996, the United States enacted the Iran-Libya Sanctions Act, known as ILSA, to punish foreign countries that invest in Iranian petroleum projects.

An unidentified State Department official said, "We are seeking additional information. We're assessing the potential ILSA implications," according to the Dow Jones news service.

The concern is about a $150 million agreement signed by Sinopec this month to help upgrade Iranian refineries and modernize port facilities to handle Caspian oil from Kazakhstan. The project is essential to Iran's plan to export Caspian oil through swaps, or exchanges of crude, competing with the U.S.-backed plan to build a pipeline from Baku to the Turkish port of Ceyhan.

News of the contract angered some members of the U.S. Congress, who called for sanctions against China's Sinopec.

A spokesman for Senator Jesse Helms, a Republican from the state of North Carolina, said, "The Chinese communist government is aiding and abetting an Iranian terrorist state. That's not something for which sanctions should be waived."

But despite the threat, a leading figure in the new administration of U.S. President George W. Bush appeared to be sending opposite signals on Iran and sanctions last week.

Retired General Colin Powell, who Bush has chosen to be secretary of state, called Iran "an important country undergoing profound change from within."

Powell -- confirmed by the Senate on Saturday -- noted that the United States and Iran have important policy differences. But he added, "these differences need not preclude greater interaction, whether in more normal commerce or increased dialogue. Our national security team will be reviewing such possibilities."

Powell was speaking before the Senate Foreign Relations Committee, which will once again be chaired by Senator Helms in the coming year. Prior to Powell's statement, Helms had already voiced his strong support for his nomination as secretary of state.

Under questioning before the committee, Powell also criticized the spread of unilateral sanctions measures, saying he "would encourage the Congress to stop for awhile. I mean stop, look and listen before you impose a sanction."

Powell made clear that he wants to "nuance our policy" toward Iran to encourage democratic reforms in the country, as well as to reduce bureaucratic burdens on the State Department related to sanctions laws.

State Department officials contacted last Friday were cautious about predicting the direction of U.S. policy after hearing the Powell testimony. One official told RFE/RL, "We're not going to comment on anything about where the new administration is going to go on Iran or anything else."

Another official conveyed uncertainty about sanctions, but added that the law remains in force for now. The official said, "We're going to plow ahead on this policy until we hear something different."

It is still too soon to tell whether Powell's statements on Iran and sanctions mean that the new administration will change the direction of U.S. policy substantially. But the new vice president, Richard Cheney, has voiced similar views on sanctions in the past as the chairman of Halliburton Company, an oilfield services firm.

In the past, the administration of President Bill Clinton reacted to foreign oilfield investments in Iran with similar statements about examining the deals as possible violations of ILSA sanctions. The assessments are required by the law, but the sanctions penalties have never been imposed. In 1998, Clinton waived sanctions against French, Russian, and Malaysian firms for helping to develop Iran's South Pars gas field.

The ILSA sanctions were enacted for five years and are set to expire in August. It is not yet clear whether Congress will try to renew the law.

The difficulty posed by the Sinopec contract is that it may also interfere with the U.S. policy of supporting the Baku-Ceyhan project. Clinton administration officials had been working to convince Kazakhstan that it should commit its oil to the pipeline to make it commercially viable.